SIE Chapter 3

The certificate which gives a person other than the stockholder the right to vote is referred to as a:

Proxy

A customer owns a warrant with a strike price of $50 and the price of the underlying security has increased from $25 to $40. The current intrinsic value of the warrant is:

Zero

A corporation has a 9% cumulative preferred stock issue outstanding. The company paid a $7 dividend in 2012 and $8 in 2013. If the company wants to pay a common stock dividend in 2014, the cumulative preferred stockholders must first receive a dividend of:

12

XYZ corporation has 7,000,000 shares of common stock ($1 par value) authorized, of which 5,000,000 shares have been issued. There are 500,000 shares of treasury stock. The current market price of XYZ is 20. The market capitalization of XYZ common stock is:

90,000,000

ABC Corporation's charter authorized the issuance of up to 1,000,000 shares of stock. The company has issued 100,000 shares, but has 5,000 shares of treasury stock. How many shares of ABC's stock are outstanding?

95,000

A French company would like to have its stock traded in the U.S. securities markets. This would most likely be accomplished through the issuance of:

American Depositary Receipts

A company based in Europe with offices located in New Jersey would like to have its stock traded on the NYSE. This would most likely be accomplished through the issuance of:

American Depositary Receipts

Foreign stocks trade in U.S. markets as:

American Depositary Receipts (ADRs)

During a period of stable interest rates, which type of preferred stock tends to be the most volatile?

Convertible

Which shares of preferred stock may increase the most if the value of the company's common stock appreciates?

Convertible preferred stock

Last year, a company failed to pay the full dividend to its preferred shareholders, but now wants to pay a cash dividend on its common shares. Which preferred stock must be paid all of the dividends in arrears before the dividend can be paid on its common shares?

Cumulative preferred

An individual is interested in an investment that offers annual income, has the potential of appreciating in value if interest rates decline and, in the event that the issuer fails to make a payment, having the missing amount added to future distributions. For this investor, which of the following securities is the most suitable?

Cumulative preferred stock

A method of voting that gives smaller, less substantial stockholders a greater degree of voting power over the larger, more substantial stockholders is:

Cumulative voting

A company in which your client owns stock is about to make a rights offering. The client informs you that he does not plan on subscribing to the offer. You would tell the client that his proportionate ownership interest in the company would:

Decrease

Preemptive rights give existing stockholders the right to:

Maintain their proportionate interest in a corporation

A customer owns 1,000 shares of LRR preferred stock and the company is in the process of conducting a rights offering for its common stock. Under the terms of the rights offering, two rights are required to buy one new share and the subscription price is $25 (the stock's current market price is $26.50). This customer would be entitled to which of the following?

No additional shares

The Electro Corporation intends to raise additional funds from its existing shareholders to avoid diluting their interest in the company. The corporation will be engaging in a:

Rights offering

A corporation's shareholders must vote for:

Stock splits

Common and preferred stock are similar in that:

The dividends for both must be declared by the board of directors

All of the following statements are TRUE regarding ADRs, EXCEPT:

The increased trading volume and enhanced liquidity in the U.S. markets lead to prices that are virtually identical to those of the underlying stock in the issuer's host country

A Japanese manufacturer of handheld gaming devices does not want to pay for the costs associated with having its shares traded in the U.S. Which of the following statements is TRUE?

The shares may be traded in the U.S. as an unsponsored ADR

Preemptive rights provide which of the following benefits to their holders?

Their proportionate ownership will not be diluted if additional shares are issued.

Which of the following statements is NOT TRUE about preemptive rights?

They receive the same dividends as those paid to shareholders.

An investor would have the right to buy the stock of a corporation for the longest period of time by purchasing a:

Warrant

The security with the longest expiration date would normally be a:

Warrant

Which of the following statements is TRUE regarding warrants?

Warrants can be perpetual

Which of the following represents the correct ranking of securities from longest to shortest life?

Warrants, options, rights